Individually Rational, Balanced-Budget Bayesian Mechanisms and the

Sergei Severinov and Grigory Kosenok

No 633, 2004 Meeting Papers from Society for Economic Dynamics

Abstract: We investigate the issue of implementation via individually rational ex-post budget-balanced Bayesian mechanisms. We demonstrate that all social choice rules that generate a nonnegative ex-ante surplus, including ex-post efficient ones, can generically be implemented via such mechanisms for any profile of the utility functions. The aggregate expected surplus in these mechanisms can be distributed in an arbitrary way. Also generically, any ex-post efficient social choice rule can be implemented in an informed principal framework, i.e. when the mechanism is offered by one of the informed parties. Only ex-post efficient social choice rules that allocate all surplus to the party designing the mechanism are both sequential equilibrium outcomes and neutral optima, i.e. outcomes that can never be blocked. This result implies that even an informed principal can extract all surplus from players in a Bayesian mechanism

Keywords: mechanism design; individual rationality; ex-post budget balancing; surplus allocation; informed principal. (search for similar items in EconPapers)
JEL-codes: C72 D82 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (3)

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